Fiscal multipliers and macroeconomic performance in the case of Slovakia and Hungary

Abstract

The aim of the paper is to estimate and assess the impact of fiscal policy shocks on gross domestic product (GDP) in Slovakia and Hungary as the EU and V4 members and to compare the results of how fiscal policy affects the economy with euro compared with the economy with its own currency. The paper is based on the vector autoregressive (VAR) model to compare the impacts of fiscal shocks in government expenditure and government revenues on real Slovak and Hungarian economy and identify possible differences. Government expenditure shock has a short-term positive effect on Slovak and Hungarian GDP, too. Also, the response of GDP to a single shock in government revenues has an immediate negative impact in Hungary in contrast to Slovakia with the positive response at the beginning. Moreover, the findings support that government expenditure has more significant impact on GDP than in the case of government revenues.